Andres Alvarez Provides the Best Answer!

And the top answer – an answer that was re-posted at the Huffington Post – comes from none other than our very own Andres Alvarez (editor of The Wages of Wins Journal).

And here is Dre’s answer:

From Melo’s perspective it’s two fold:
1. He’s only looking at Lin’s 3rd year, where he’ll be getting $14.5 and not the contract as a whole.
2. He calls it ridiculous because he realizes the offer was made just to keep New York from matching (see below)
The key reason Lin’s contract seems “ridiculous” is because of the Gilbert Arenas Provision (http://www.cbafaq.com/salarycap….) To allow teams to keep their second rounders and undrafted players, player salaries are constrained through their fourth season. Once they hit their fifth year, their salary is no longer constrained.
The premise behind this provision was to let teams keep their second round picks that turned into superstars (e.g. Gilbert Arenas, Carlos Boozer, Monta Ellis) and not worry about them being signed away with contracts they couldn’t match.
The new CBA has also added a change to the luxury tax law that means every additional $5 million over the luxury cap, you’re dinged even more.
What Daryl Morey has been doing is using these two things together to make “poison pill” contracts. In essence he’s offering players contracts that will end up costing their team $14 million + millions more in cap hit in their third year in an effort to get them not to match. http://wagesofwins.com/2012/07/1…
In reality, Lin is probably not getting overpaid, that’s because it’s impossible to even pay him an average salary his first two seasons of his new contract. However, he is likely not worth $14.5 million a year (what he’s getting his third year) and the only reason he’s offered this is because it makes it virtually impossible for the Knicks to match (as we saw).

[...] big stars will land. One of the most interesting parts of this offseason is the effectiveness of the “poison pill” contract. The basic trick is to go to a team that will likely hit the luxury tax range and look for a 2nd [...]